Multi-factor exchange traded funds are among the fastest-growing products in the alternatively-weighted space. Among the multi-factor ETFs to consider is the Oppenheimer Russell 1000 Dynamic Multifactor ETF (Cboe: OMFL).
OMFL selects companies through exposure to a subset of the low volatility, momentum, quality, size and value factors. Investors may combine the various factors to gain an easy-to-use and quick way to access a diversified market position. This combined factor or multi-factor, smart beta approach may be a good core position for any equity portfolio.
“OMFL uses economic and market pricing data to identify whether the economy is in one of four regimes: recovery, expansion, slowdown, or contraction,” said Morningstar in a recent note. “The fund overweights factors that have historically outperformed during the identified economic regime. Using economic regime as a timing signal has more moving parts than a signal that uses return data like mean-reversion or momentum.”
Up almost 9% this year, OMFL “capitalizes on the cyclicality of factor performance by employing a dynamic overlay that looks at leading economic indicators and market sentiment to determine the current market environment and then increases exposure to the factors that fare best in that environment,” according to Oppenheimer.
Inside OMFL ETF
The $262 million OMFL holds 227 stocks and follows the Russell 1000 OFI Dynamic Multifactor Index. Some of OMFL’s methodology is rooted in factor performances against various economic regimes.
“Oppenheimer’s economic regime model changes quickly because it pairs fast-moving market sentiment indicators (rather than traditional measures of expansion and contraction) with traditional economic indicators to identify economic regime,” according to Morningstar. “Given that factors can underperform for long periods of time, and the model assumptions may not hold, relying on economic regime to time factors may not be effective.”
OMFL allocates nearly 23% of its weight to technology stocks, an almost 2.5% overweight to that sector relative to the Russell 1000 Index. The Oppenheimer fund also devotes a combined 29.20% of its weight to the healthcare and consumer discretionary sectors. OMFL is also overweight those sectors relative to the Russell 1000.
OMFL charges 0.29% per year, or $29 on a $10,000 investment.
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